Wednesday, 11 June 2008

UK labour market still strong

The latest unemployment data were remarkably strong. Unemployment continues to be low, while the number of vacancies remains quite high.

Unemployment will be the last place we will see signs of a recession. During the early stages of a slowdown, firms tend to hold on to workers, which invariably have firm-specific skills. It is costly to fire staff, especially if you have spent time and money training them to work for you.

Today's unemployment numbers also point out a difficult truth about the housing crash. House prices are not falling because of anything happening labour market, which continues to operate at close to full employment despite credit difficulties.

Nevertheless, first quarter GDP data indicated that the economy is beginning to slow, and going forward, these numbers could begin to deteriorate. As people lost their jobs, mortgage default rates would rise, housing supply would increase and further weaken the housing market.

Nobody wants to see a rise in unemployment. Recessions are terrible events, and let us all hope we can avoid one. At the same time, if unemployment does begin to rise, we could see the housing crash being hit with a second, labour market related shock that could send prices crashing through the floor.

Recession is the cure, not the problem (I'm sure a 80s Stallone film had a similar tag line). I am very happy to see worthless jobs eliminated and people go back to earning jobs based on skills they possess rather than desperate hiring.

Have you added unemployment data to the disability benefit data? That's where UK unemployment is hiding. The book "Squandered" has a good chapter on it.

Also, unemployment is a thunder rolling this way. It's coming. Banking crisis and retail crisis both throw off workers soon enough and then the spiral starts.

I've been saying a while that being debt free and employed is going to be the equivalent of several promotions in this environment.

100% agree Nick... I am currently looking for the best way to face the market at the moment... I'm confident that my skills are valuable and that I represent a better value-for-money proposition than most others out there... Plus I can move as I don't own my home... but it is still a little daunting. I can't help imagine that no-one will be thinking how best to hire when they're pre-occupied with the firing stage.

I'm sure most people are worried about that too, but the big issue is whatever job you do, what does the money buy you?

I keep labouring the point, but almost everything of value is a positional good - i.e. your access to it depends where you are in the pecking order, not how many £££s you have in a nominal sense.

For ten years the reckless borrowing of consumers and the mindless expansion of the public and retail sectors has created (via inflation) a ton of purchasing power that competes against us every day for goods and services. The goods we can import cheaply from China. The services, healtcare, education, houses etc are positional.

Therefore the reckless and the public sector loafers have outbid us for many things and we've felt that as a decline in living standards.

Now things are moving in reverse. We will soon be in the position where the prudent and hard working see a large rise in their standard of living for everything except imported goods.